There can be no growth without true economic freedom

Help FMF promote the rule of law, personal liberty, and economic freedom
become an individual member / donor HERE ... become a corporate member / donor HERE

The FMF has an increasingly important role to play in South
Africa, not only in relation to economic policy but in other critical policy
areas as well.

To compare South Africa internationally, our economic
freedom score has declined dramatically. Between 2000 and 2012, our ranking
dropped from 41st out of 123 countries to 93rd out of 152
as measured by the annual Economic Freedom of the World (EFW) reports. This
decline in economic freedom has had severe negative consequences for economic
growth in South Africa.

The EFW reports have been published annually since 1980 by
Canada’s Fraser Institute and publicised by the Economic Freedom Network, a
worldwide network of 89 free market organisations that co-publish the reports.
Milton Friedman believed that if economic freedom could be measured with
greater accuracy, researchers would be able to identify more clearly the key
elements affecting the performance of economies and was closely involved in
establishing which methods to use.

We look forward to the 2015 EFW report (measuring the 2013
year) which will be out in the next few weeks. Watch out for FMF notices and
events relating to its release.

The EFW report describes the cornerstones of economic
freedom as (1) personal choice, (2) voluntary exchange co-ordinated by markets,
(3) freedom to enter into and compete in markets, and (4) protection of persons
and their property from aggression by others.

Economic freedom exists when people can choose for
themselves and engage in voluntary transactions without doing harm to others or
their property.

While the world rankings of most African countries have
declined substantially since 2000, there are some extraordinary exceptions that
are following policies that are substantially freer than the rest such as Rwanda
(which has shown the greatest improvement in its ranking) and Mauritius. South
Africa, on the other hand, has suffered the greatest decline. The following
table shows the change in rankings of a few selected countries:

Country

2000

2012

Changes

Mauritius

20

5

+15

Rwanda

102

29

+73

Ghana

101

98

+3

Botswana

39

54

-15

Tanzania

88

94

-6

Kenya

55

77

-22

Uganda

51

57

-6

South Africa

41

93

-52

Nigeria

109

125

-16

Lesotho

106

111

-5

Namibia

70

109

-39

Zimbabwe

118

149

-31

The only improvement in South Africa’s economic freedom
ratings since 2000 was in the area of sound money (7.85 to 8.10 out of 10).
Abolition of exchange controls would improve this rating even further.

All our other ratings declined. One that has an undoubted
negative impact is the excessive growth of government. Our size of government ranking
declined from 6.45 to 5.38 out of 10. A country is not economically free when
the economy is increasingly dominated by government and state owned
enterprises. When the state crowds out private enterprise, efficiency declines
and costs rise. State-owned monopoly enterprises do not provide goods and
services as efficiently as private firms.
One of the main reasons is the absence of the profit and loss incentives
and disincentives, coupled with reduced accountability. Another is that
politics tends to displace economic considerations. Excessive growth of
government size and influence, as shown by EFW research, has an undoubted
negative impact on an economy.

Some of the other ratings that impact most negatively on our
economy (all rated out of 10) are Integrity of the legal system 4.17, Legal
enforcement of contracts 3.93, Reliability of police 4.59, Business costs of crime 2.75,
Capital controls 0.77, Hiring and firing regulations 1.55, Centralised collective
bargaining 2.84,Regulatory admin requirements 3.20, Bureaucracy costs 3.11.

All the evidence shows that if our economy is to grow
rapidly, reduce unemployment, and reduce poverty and inequality, the first
requirement is for government to reduce -not increase - its role in the
economy. We need the courts and the legal system to function properly. The
police must contain crime by arresting and charging criminals and keep people
and their property safe. The labour dispensation must be changed to allow the
unemployed to compete for jobs and red tape must be cut drastically. We know
from historical evidence and our own observations that these changes will make
a difference.

Economic turmoil is worldwide and the world’s governments
are responsible. They have spent too much, incurred too much debt, intervened
too much in the lives of their fellow citizens, and debased the currencies
under their control. These activities have resulted from collectivist/socialist
ideas which do not have successful economic results. It is time for the world
and our own country to institute economic freedom in order to raise living
standards, reduce poverty and inequality and bring about peaceful co-existence.

The EFW studies confirm the historical evidence and our
observations, show us which factors have the greatest impact, and suggest what
requires the most urgent attention. They provide the recipe for economic
success; all we need is for our and other governments to follow it.

Author: Ayanda Khumalo is the Chairman of the Free Market
Foundation. This article is an excerpt from the Chairman’s Report to the Annual
General Meeting held on 19 August 2015. The article may be published without
prior consent but with acknowledgement to the author